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Due to the recession, Lisa lost her job and was unable to find another job

Marketing

Due to the recession, Lisa lost her job and was unable to find another job. She also saw her consulting business income fall to just $5,000 per year. Lisa then decided to start her own printing business by taking out a $50,000 mortgage on her home to buy equipment that costs $5,000 a year in interest. In her first year, she made $75,000 in revenue and had to pay $50,000 for paper, ink, and other material costs. However, she had to stop consulting. What was Lisa?s economic profits?

a) $25,000

b) $20,000

c) $15,000

d) -$35,000

An decreasing long-run average cost curve for a firm is most likely to be found in an industry that is:

a) monopolistic

b) perfectly competitive

c) monopolistically competitive

d) all of the above

A perfectly competitive firm?s marginal cost is $5, marginal revenue is $4, and average variable cost is $3. To maximize profits (or minimize losses), the firm should:

a) shut down

b) lower the quantity of output (but not shut down).

c) leave the quantity of output unchanged

d) increase output

A perfectly competitive firm should shut down in the short run if:

a) the price is lower than the average total cost

b) the price is lower than average variable cost

c) the price is lower than the average fixed cost

d) the price is lower than the marginal cost

When a perfectly competitive firm is in long-run equilibrium, it is allocatively efficient because the:

a) price equals average total cost

b) price equals average variable cost

c) price equals zero

d) price equals marginal cost

When compared to a pure monopoly firm with identical costs of production, and the same demand:

a) a perfectly competitive industry will produce more and charge a higher price.

b) a perfectly competitive industry will produce less and charge a higher price.

c) a perfectly competitive industry will produce less and charge a lower price.

d) a perfectly competitive industry will produce more and charge a lower price.

In the long run, monopolistic competition is characterized by excess capacity because firms:

a) are always profitable in the long run

b) charge a price that is less than MC

c) produce at an output level that is less than the least-cost level of output.

d) demand for a product is perfectly elastic in this type of industry.

What is a likely characteristic of an oligopolistic industry?

a) There are minimal barriers to entry.

b) The market demand curve is perfectly elastic.

c) There is little or no advertising.

d) Price and output decisions of firms are interdependent

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Answer and Explanation:

1. The correct answer is c. 15,000

Explanation-

Lisa′sProfit=TotalRevenue−Materialcosts−Incomefromconsultationbusiness−Interestpayment=75,000−50,000−5,000−5,000=15,000Lisa′sProfit=TotalRevenue−Materialcosts−Incomefromconsultationbusiness−Interestpayment=75,000−50,000−5,000−5,000=15,000

2. The correct answer is c) monopolistically competitive

Explanation- In the long run, the perfectly monopolistic competitive market, the prices are determined by falling quantity.

3. The correct answer is d) increase output

Explanation- In the case where Marginal Cost is more than the Marginal Revenue, then the firms should increase their production to ensure the revenue increases with respect to the cost of production.

4. The correct answer is a) the price is lower than the average variable cost

Explanation- If the price is equal to average variable cost, then the firm is said to be at the break-even point. But if the prices fall then it is better for a firm to shut down.

5. The correct answer is d) price equals marginal cost

Explanation- For achieving maximum profits, the price should be equal to the marginal cost.

6. The correct answer is d) a perfectly competitive industry will produce more and charge a lower price.

Explanation- In a monopoly market, the prices are charged high, but in a perfectly competitive market, the prices are kept low to incur more profits.

7. The correct answer is c) produce at an output level that is less than the least-cost level of output.

Explanation- The perfectly competitive market has immense competition between suppliers. The primary characteristic is that they can produce more at a lower price to maximize their profits.

8. The correct answer is d) Price and output decisions of firms are interdependent

Explanation- The prices and output in an oligopoly market id interdependent and undetermined because of the firms and the goods. The prices are dependent upon the demand and supply in the market and also because the oligopoly is not so competitive.